The following is a guest post from Christina Comben.
Fisher Yu is the co-founder and CTO of Babylon, the Bitcoin staking protocol causing a stir among forward-thinking HODLers. Polite and friendly, he asks how I’m doing and where I’ve flown in from to attend the first Bitcoin Conference in the MENA region. “Not as far as you,” I smile and he laughs, having traveled thousands of miles from Australia to Abu Dhabi.
We make our way through throngs of people meandering in the exhibition hall, striking up conversations, checking out booths, and listening to panelists discuss the latest advances in Bitcoin mining. It’s a notable crowd and finding a quiet space to speak is a challenge. Fisher remains unphased, unlike most people in his position who would be incessantly checking their watch and rolling their eyes by now.
At last, we find a vacant table with a couple of high, wonky chairs that scrape the floor with jarring abrasion and challenge our center of gravity as we sit. He makes sure that I’m comfortable and I move the recorder closer, hoping his gentle voice isn’t muffled by the rising din.
Enabling HODLers to Earn Money on Their Bitcoin
I ask Fisher to give an overview of Babylon. He replies,
“What Babylon does is to build native use cases for Bitcoin, and use it to empower the rest of the decentralized world.” I nod and he smiles. “This sounds very abstract. Let me give you a concrete example.”
He says there are currently four broad use cases of Bitcoin—holding, transacting, lending, and bridging—“but they are far from equal.” He explains that “native” use cases mean anything that happens on the Bitcoin blockchain that does not involve a third party (i.e. holding and transacting). Generating yield by lending or carrying out DeFi by bridging requires trust in a third party, either in the person who borrowed your Bitcoin or the developers behind the bridging protocol.
“This implies a much greater level of risk,” Fisher explains. “Holding it and simple payment, it’s very safe to use, as long as you are honest and the Bitcoin chain is secure. So, Bitcoin currently only has two native use cases. Store of value and simple payment. Anything else is not native because it requires you to trust someone else or something else.”
Yet with millions of Bitcoin lying dormant while an industry of staking, lending, borrowing, LPing, and myriad ways to earn yield continues to thrive, a growing cohort of HODLers seeks to earn money on their idle coins—without giving up control.
More Native Use Cases for Bitcoin
To meet this rising need, Babylon is building more native use cases for Bitcoin, beyond simple payment and store of value that allow HODLers to earn rewards and get more out of their Bitcoin than passively holding. “We wanted to reactivate Bitcoin by inventing a new native use case for it that does not require any trust from any third party and what we have already built is called Bitcoin staking.”
Just as Ethereum holders can choose to stake their ETH and increase their holdings over time, Babylon enables Bitcoin holders to do the same without giving up custody of their assets.
“What we achieved is to make Bitcoin stakeable,” he says. “HODLers can stake BTC to secure other blockchains, rollups, and decentralized systems, and provide Proof-of-Stake-like security while earning staking rewards from those systems.”
The rewards are earned in the currency of the protocols they stake on, rather than in BTC itself, and the staked bitcoins remain in the holders’ wallets and never leave their custody. “No one can steal your Bitcoin,” Fisher says firmly, “no one,” he repeats for added emphasis.
What types of chains can Bitcoin secure? Technically, Bitcoin staking can secure any decentralized system, but Babylon has “limited bandwidth” and is currently focused on Cosmos chains and Ethereum and Bitcoin rollups.
The Rise of the Babylon Empire
Babylon invented the concept of Bitcoin staking in July 2023 and has been building it for over a year, launching its phase one mainnet in mid-August 2024, which was immediately capped out. Fisher explains, “We just opened a very small window with a capped limit of 1,000 Bitcoin stakes. That was filled in one hour,” reflecting the pent-up demand to earn yield.
Initial staking transactions via Babylon were not large. In every transaction, users could only stake up to 0.05 BTC.
“In theory, you need about six BTC blocks to fill those 1,000. They were filled in 5.5 blocks. That means for that hour, the entire Bitcoin chain, 99% of the transactions were Bitcoin staking transactions to Babylon.” He laughs, “We hijacked the Bitcoin chain for an hour.”
From this early encouraging response, Babylon has worked to scale its model, opening its second cap in October with a duration-based mechanism rather than size.
“We opened our staking for 10 BTC blocks, which is roughly one hour and a half,” he says, “and decided that we would accept any staking transaction within these 10 BTC blocks.” The result?
24,000 bitcoins were staked. At Bitcoin’s current value, that’s equivalent to a TVL of ~$2.5 billion. My jaw drops. “Yeah, and some stakers staked 500 bitcoins in one transaction. That’s $50 million in one transaction staked to us!”
Understanding the Risks
With Bitcoin’s past littered with the skeletons of yield-bearing platforms like BlockFi and Celsius and harrowing tales of third parties taking users’ private keys with them to the grave, are there any risks to staking Bitcoin at all? Somehow, it feels too good to be true.
Fisher points out that like any setup, you have standard risks, like losing your key and forgetting your password, “but those are not specific to our protocol,” he says.
“More specific to our protocol is something called slashing risk. Proof-of-Stake can provide security as the staker protects the chain, but if you backstab the chain instead of securing it, your stake can actually be slashed. This is why Proof-of-Stake can provide security because it deters the staker from attacking the chain by making the stake slashable. So there is a slashing risk of your Bitcoin.”
That sounds a little scary but Fisher assures,
“The good thing is that as long as you don’t attack the peer-to-peer, your Bitcoin is safe, and as long as you don’t delegate your voting power to a validator who attacks the chain you are supposed to secure, then your Bitcoin is fine.”
In Bitcoin We Trust
What types of customers is Babylon attracting? Glancing around the room at the diehard Bitcoin maxis convening at one of the most important events of their calendar year, I imagine the demand from this subset of Bitcoiners would hover around zero.
Fisher follows my gaze and laughs, saying that the type of customer Babylon is attracting is “quite happy with this type of action and experiments.” He concedes, “Maybe not the extreme Bitcoin maxis but the more progressive maxis are quite welcoming to us because we actually obey their principle. We are not your keys, not your coins.” Babylon also doesn’t bring any other trust assumptions.
“The only trust is in Bitcoin. In Bitcoin we trust. So we are building native use cases for Bitcoin.”
I ask what Fisher thinks about Osmosis founder Sunny Aggarwal, a self-proclaimed Bitcoin maxi who wants to convert the Bitcoin chain to Proof of Stake. The other maxis may have a thing or two to say about that.
“Sunny was thinking about a very long-term vision. Since the Bitcoin mining reward halves every four years, unless the Bitcoin price goes up by many, many folds, then the mining reward will not be able to cover the Bitcoin mining cost. At that time, what do you do? What does Bitcoin do? Where does Bitcoin go? If miners cannot cover their costs, the only thing they can do is shut down their mining machines. Then Bitcoin has to close down. Then it’s not secure anymore.”
Following the path of Ethereum and converting to a Proof-of-Stake consensus mechanism could be one way around this existential dilemma.
“So in this direction, Babylon is super relevant, but when Bitcoin staking is adopted widely, I think this doesn’t have to be the only path. Remember, there are transaction fees that Bitcoin miners can collect. Also, once Bitcoin staking is adopted, the miners can actually stake their Bitcoin and earn yield. So the yield they earn can be used to cover their mining costs and they don’t have to shut down their machines.”
Plans for the Year Ahead
With 2024 in the rearview mirror, what lies ahead on the roadmap for Babylon? Phase one of the mainnet was recently launched inviting Bitcoin stakers to lock their Bitcoin on-chain. Fisher says the next phase of the mainnet will be the launch of the Babylon chain, which will be the first chain to be secured by Bitcoin staking.
“After that, we will turn the Babylon chain into a marketplace where Bitcoin holders can stake to all the other decentralized systems I mentioned.”
The name for the Babylon project was conceived by Fisher’s co-founder, Professor David Schaefer at Stanford University. While many of us know Babylon as an ancient city, it was in fact the first-ever marketplace in human history.
“We chose the name Babylon as the chain will eventually become a marketplace where Bitcoin holders can find use cases and consumers will come to Babylon to enjoy the use cases. So this is our goal for the next year.”
Fisher and the team are betting on “a very good year for Bitcoin and the entire crypto ecosystem” in 2025, as it becomes more and more mainstream.
“We will be able to bring the mainstream institutes, users, and capitals to the crypto world because Bitcoin has become mainstream, it attracts new users, new capital, and new institutions, and Bitcoin staking will be their natural choice.”
I ask if he wants to share anything else before we wrap up our chat, perhaps the long-term vision of the project?
“We wish in five to ten years when everyone in the world talks about Bitcoin, the first word they say is Bitcoin. The second they say is Babylon.”
I thank him for his time and turn off the recorder but he’s in no hurry to leave, making pleasant conversation, asking me about my journey in crypto, and my thoughts on life in this burgeoning region. If Fisher places as much attention to detail into Babylon as he does in his interactions with others, the future can only be bright and the next native use case for Bitcoin deserves to go a long way.
